According to a press release which came out last Tuesday, Cisco Systems Inc. (CSCO) has added a new service to its portfolio as it launches a cloud based Desktop as a Service (DaaS) solution for its business customers.

The company already offers on-site desktop virtualization services, but this will be its first endeavor into the cloud-based virtual desktop solution. In order to offer the best possible service, the company has formed a partnership with two other companies, VMwares (VMW) and Citrix (CTXS).

The new partners:

Just two months ago, VMwares acquired Desktone, the pioneering industry for Desktop as a Service platforms. Citrix, which owns GoToMeeting and Podio, has been on the decline lately since it posted third quarter losses, particularly in its desktop services division. While Cisco and VMwares have both been relatively stable even if declining this past year, Citrix saw a steep drop in October (of nearly 30%) to its 52-week low of $54.52.

This decline came after the company warned its stockholders that earnings for the third quarter would be lower than previously estimated. However, these third quarter losses were primarily a result of increased expenses and overshadowed the company’s growing revenues. Therefore, the decline is temporary and not indicative of any future danger. In fact, the value has already begun to recover steadily and currently, sitting at $61.67.

But the unique strengths of all three companies should lead to a very fruitful partnership with the launch of Cisco Systems Inc.’s new DaaS platform. As both Cisco Systems and Citrix have been declining in value — Vmwares has, on the other hand, steadily risen — this move into the emerging market for Desktop as a Service solutions appears to be a smart move from all involved.

The new cloud-based DaaS platform:

Customers will benefit from increased efficiency, security and simplicity as the new system is based on the structure of Cisco Systems Inc.’s previous desktop virtualization services, Cisco Unified Computing System and Cisco Unified Data Center. And because it’s a cloud service, users will be able to access their desktops from any device they wish. It will also save companies time and money on desktop maintenance.

With this new launch as well as the partnerships it has worked to form, Cisco Systems Inc. has shown that it is looking toward the future. There has been a notable shift in businesses and in the workplace toward cloud services since they streamline workflows, allow for greater flexibility and are much more user friendly. Cisco Systems Inc. is aware of this shift and is already set to carve out a healthy share of this emerging market.

What this means for Cisco Systems Inc:

The new DaaS platform should help to bring Cisco Systems out of this recent slump and back in the black. This moves means that the older technology giant is ready to adapt to a changing information technology market and the ability to efficiently and smoothly adapt to change is key to surviving the fast changing technology markets.

And this adaptability is already paying off just one week later. On Monday, Cisco Systems, Inc closed at $21.57 which represents a 2.1% rise in its stock market value. The new launch, together with a relatively strong financial report, has made analysts more optimistic. A full 19 analysts rate Cisco System's stock a buy and none caution stockholders to sell.

Potential problems

Cisco Systems is definitely not the only company to notice the potential profits in cloud services. Just a few weeks prior to the company’s announcement, Amazon (AMZN) launched a similar service in an attempt to break into the emerging Desktop as a Service market.

While the Amazon service is still in the testing phase, the company is optimistic about its early successes as many businesses are showing interest. If the service can live up to its promises, analysts predict that the company’s revenues will grow to $8.2 billion by 2017.

As more and more companies compete to dominate the new market, Cisco Systemswill have a harder time gaining control. However, by partnering with two other companies and targeting service providers rather than individual home consumers, the company appears to be making the right moves.

One major advantage that Cisco Systemshas over competitors like Amazon is that it already has an established reputation for its desktop virtualization services, meaning that this entrance into the DaaS market is simply an expansion of its already existing virtual desktop portfolio. It won’t have as many of the expenses or obstacles of breaking into an entirely new market.

Some analysts are concerned that the new Cisco Systems DaaS platform is just more of the same as it is closely modeled on the company’s desktop virtualization services and appears to be just a reiteration of its older systems.

However, Cisco Systems is confident that the new DaaS system is much more than that and will offer a wide variety of new services and possibilities for its users.

Conclusions:

There are some potential road blocks ahead of Cisco Systems as it welcomes the New Year with new forays into emerging markets. Services being offered by rivals in the DaaS market — most notably Amazon’s Workspaces — present potentially stiff competition.

On the other hand, Cisco Systems was smart to partner with Citrix and especially VMware, which now owns Desktone. And in the week following the announcement of its new DaaS platform, the company has already seen a welcome rise in its stock market value.

With that good news and the company’s already established reputation in desktop virtualization services, it seems fairly safe to say that Cisco Systems is set to have a profitable year in 2014.

Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC.
Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.